Charges Against Ex-Lehman Brothers Officials Dismissed
A US District Court in New York has dismissed claims against former officials of Lehman Brothers Holdings Inc. (LEHMQ) in a securities-fraud row brought by buyers of more than $31 billion of securities.
U.S. District Judge Lewis Kaplan in New York ruled to trash claims in the class-action, which names as defendants five former top Lehman officers, nine former directors, Lehman’s outside auditor Ernst & Young LLP and 51 underwriters of Lehman securities.
Some of the claims against Ernst & Young were also dismissed, though Kaplan ruled to retain the case against the accounting firm.
In December last year, New York State Attorney General Andrew Cuomo found negligence on the part of Ernst & Young while Lehman Brothers misrepresented its financial status prior to the 2008 global economic crisis, making it appear healthier when it actually was on the verge of falling.
A group of pension funds, companies and individuals, who filed the suit, alleged that the investment firm’s financial statements contained misstatements.
These statements, the suit added, allegedly omitted the firm’s use of “Repo 105” transactions, risk-management policies, liquidity risk, credit risk and the value of real estate held by Lehman Brothers.
Ernst & Young, however, said last year that media hype over the repo transactions was wrong, Repo 105 transactions of Lehman Brothers are not suspicious, properly represented in the bank’s financial statements.
The financial standard SFAS 140 gives two cases in which repurchase agreement can be considered as a sale. It states that “(1) an agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity (paragraphs 47−49) or (2) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call (paragraphs 50−54).”
Ernst & Young has also claimed that the Repo 105 did not violate these requirements because securities were highly liquid and could be sold. However, in its 2007 audited financial statement, Lehman Brothers included footnote disclosure of off balance sheet commitments of almost $1 trillion, which could have alarmed the investors of the status of financial health of the bank.
The case is In re Lehman Brothers Securities and ERISA Litigation, 09-MD-2017, U.S. District Court, Southern District of New York (Manhattan).
During the height of the global financial crisis in 2008, Lehman Brothers filed for bankruptcy to protect its assets worth $639 billion.
Sale of real estate properties
On the other hand, Lehman Brothers has closed an agreement to sell majority of its commercial real estate property in Rosslyn, Virginia, to a Goldman Sachs unit to raise at least $385 million, which could help to pay back creditors, court papers showed.
The property is part of Lehman’s real estate holdings, and is expected to raise its coffers by $13.2 billion by the end of 2014, according to Lehman Brothers court filings, adding that the investments firm has already made $3 billion from the sales of its real estate properties since it filed for bankruptcy.
Lehman Brothers has 78.5 percent of limited partnership interest in the Rosslyn site.
Lehman Brothers said in a court filing that the deal values the Rosslyn portfolio at $1.257 billion, which includes 3 million square feet of commercial real estate at 10 properties.